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Doctrine of Holding Out

Partnership by Holding Out is also
known as partnership by estoppels. Holding out is merely application of the
principle of estoppel which is a rule of evidence wherein a person is prevented
or estopped from denying a statement he made or existence of facts that he
makes another person believe. In simple terms, if a person represents that he
is a partner of a particular firm, he is estopped from denying this
representation later on. The doctrine of holding out has been provided under
section 28 of the Indian Partnership Act, 1932. Section 28 reads as:

“Holding
Out - (1) Anyone who by words spoken
or written or by conduct represent himself, or knowingly permits himself to be
represented, to be a partner in a firm, is liable as a partner in that firm to
anyone who has on the faith of any such representation given credit to the
firm, whether the person representing himself or represented to be a partner
does or does not know that the representation has reached the person so giving
credit.

(2) Where
after partner's death the business continued in the old firm-name, the
continued use of that name or of the deceased partner's name as a part thereof
shall not of itself make his legal representative or his estate liable for any
act of the firm done after his death.”

Example - A introduced B as his
partner to C and B knowing that he was not a partner did not object to A's
representation. Here B will be liable by holding out.

Essentials
of holding out

To hold a person liable as a partner
by holding out, it is necessary to establish the following:

i.that he represented himself, or knowingly permitted himself
to be represented as a partner

ii.Such representation occured by words spoken or written or by
conduct

iii.the other party on the faith of that representation gave
credit to the firm

No holding
out in certain cases

1.Deceased partner

2.Insolvent partner

3.Sleeping or dormant
partner

Retired
Partner – Whether liable by holding out or not?

A retired partner of the firm is
liable to third parties by the principle of holding out if he allows using his
name in connection with the firm